Public Bill Committee

[Mr David Crausby in the Chair]

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) - Clause 51  - Abolition of contracting out of state second pension: consequential amendments etc

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: Good morning, Mr Crausby. I know how keen everyone is to be up and running back in Committee. How we have missed it since last week. But fear not, because we are back and settling in for a good scrutiny session.
Clause 51 deals with consequential amendments following the abolition of contracting out of the state second pension. It would be useful if the Minister gave us a brief explanation of how far the clause extends into wider questions about that abolition, the discussion of which will shortly take place on the Floor of the House on Second Reading of the Pensions Bill. Pensions provisions are very technical, and some people find it difficult not to glaze over when discussing them, but not me; I find them absolutely riveting and scintillating. They matter because they affect our constituents, if not ourselves, long in advance of our reaching the golden age of retirement. Will the Minister set out how the clause relates to such wider questions?
Changes have already been made to the contracting out of defined contribution pension schemes, but I do not think that the clause extends to the proposal—it may be in the Pensions Bill—about the contracting out of defined benefit pension schemes. There are obviously big questions about that reform. In general, we all want to move towards simplicity and we welcome simplification of the pensions system. It would help if the Minister gave us an overview of how the clause relates to that.
I have specific questions about those who will be affected by the implementation of the new start date in relation to the state second pension arrangements—it used to be known as the state earnings-related pension scheme—that changed in about 2007. An enhanced single-tier pension is planned for when those schemes disappear, but people will be asked to pay in for more years—35 years as opposed to 30 years—which has a cost and some consequences.
Similarly, those who might have enjoyed a relief from a discount in national insurance contributions after having opted out of the state second pension, because they were in a defined benefit scheme—they are typically in the public sector, where defined benefit schemes are prevalent—will contribute significantly more. The Treasury has already pencilled in billions of pounds of gain from April 2016. Will the Minister elaborate, and generously indulge me by letting me ask questions along the way?

Sajid Javid: I welcome you back to the Chair, Mr Crausby. I thank the hon. Member for Nottingham East for his comments, and I am pleased that he finds the topic as riveting and scintillating as I do.
Contracting out of the state second pension through defined contribution pension schemes was abolished from 6 April 2012—I shall say more about that in a moment—and clause 51 makes changes to tax legislation that follow on from that abolition. They will ensure that the tax rules and regulations are consistent and are aligned with each other.
By way of background, some pension schemes provide a pension that replaces all or part of the additional state pension, which is sometimes referred to as the state second pension. When people join one of those schemes, they are said to be contracted out of the additional state pension. Members of such pension schemes pay a lower rate of national insurance in return for giving up their entitlement to the additional state pension. To help to simplify the pension system, the Government are ending that facility.
The first stage of the process was the abolition of contracting out of the state second pension on a defined contribution basis. The previous Government announced on 12 March 2010 that contracting out on a defined contribution basis would be abolished from 6 April 2012, and the present Government confirmed that that would happen. The second stage of the process will be to abolish contracting out for members of defined benefit pension schemes. At Budget 2013, the Chancellor announced that that would take effect from 6 April 2016. Those changes are integral to the Government’s broader strategy of reforming the state pension with the introduction of a new single-tier pension from 6 April 2016.
Clause 51 will simplify pensions tax legislation and remove possible causes for confusion. It will remove or amend all provisions in the tax rules that refer to contracting out through a defined contribution pension scheme. I confirm for the hon. Gentleman that the clause refers only to defined contribution pension schemes, and it is not related to the Chancellor’s announcement in the Budget on defined benefit schemes. As I have explained, members of defined contribution pension schemes have not been able to contract out of the state second pension since April 2012, so no individual will be affected by this tidying-up exercise.
Secondary tax legislation contains additional references to contracting out on a defined contribution basis. We have consulted on draft regulations to remove or amend all provisions in secondary legislation that include such references, and those regulations will be introduced after the Bill has received Royal Assent. In addition, we anticipate making further consequential changes to pensions tax legislation in a future Finance Bill after contracting out for members of defined benefit pension schemes has been abolished.
I conclude by saying that clause 51 tidies up pension tax legislation by reflecting the fact that contracting out of the state second pension for members of defined contribution pension schemes was abolished from 6 April 2012.

Christopher Leslie: We are making excellent progress. Will the Minister set out the predicted fiscal impact of the changes made in clause 51? I am not quite clear what that impact will be, and it would be helpful to have that on record. Have the Government assessed whether the changes will create difficulties in employer pension provision? Has any assessment been made of the availability of pension schemes over and above those available under the auto-enrolment arrangements?

Sajid Javid: The fiscal impact of the changes is expected to be nil. I will have to look into the hon. Gentleman’s question about auto-enrolment and get back to him.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Clause 52  - Overseas pension schemes: general

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: Clauses 52 and 53 introduce a series of technical arrangements on qualified recognised overseas pensions schemes, which have the wonderful acronym QROPS—I am not sure quite how that is pronounced. Will the Minister give us a sense of whether there will be any particular benefit from these clauses? I would like to hear the rationale behind them put on the record.

Sajid Javid: Individuals can transfer their pension savings in a UK-registered pension scheme to a QROPS, free of tax. The rules were designed to allow individuals who leave the UK permanently to continue to save for their retirement in their new country of residence. However, HMRC found that the QROPS regime was being used increasingly as a route to convert UK pension savings into a single lump sum payment to escape UK taxation. That was clearly unacceptable, so the Government published a statement explaining the policy intention of the QROPS regime on 6 December 2012.
The changes made by clause 52 strengthen the QROPS regime in a number of ways to ensure that it can be monitored more effectively and that the correct UK tax charges are applied. The clause specifies additional criteria that HMRC may use to exclude a scheme from being a QROPS, and also amends the powers to make regulations so that information will have to be provided by schemes that cease to be QROPS after the Bill receives Royal Assent. A new system of re-notification for QROPS will also be introduced.
Draft regulations were published for consultation on 24 May, and the consultation will close on 21 June. Subject to any amendments as a result of the consultation, the regulations will be introduced when the Bill receives Royal Assent.
If the hon. Gentleman has no other questions on the clause, I commend it to the Committee.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Clause 53 ordered to stand part of the Bill.

Clause 54  - Employee shareholder shares

David Gauke: I beg to move amendment 56, in clause54, page27, line5,at end insert
‘and provision for an exemption from income tax in connection with advice relating to proposed employee shareholder agreements.’

David Crausby: With this it will be convenient to discuss the following:
Amendment 51, in clause54,page27,line5,at end add—
‘(2) The Chancellor of the Exchequer shall review the impact of this section on tax avoidance activity, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.
Clause stand part.
Government amendments 57 to 59.
That schedule 22 be the Twenty-Second schedule to the Bill.

David Gauke: Thank you, Mr Crausby. It is a great pleasure to serve under your chairmanship once again.
Clause 54 and schedule 22 introduce the tax reliefs that form part of the new employee shareholder employment status. The reliefs reduce the amount of income tax payable in respect of employee shareholder shares and exempt from capital gains tax income from up to £50,000 worth of shares received by each employee shareholder. The clause also provides consequential changes to corporation tax provisions. The measures will support the wider aims of employee shareholder status by providing a further incentive for individuals to take up the new status and by addressing some of the tax barriers that have arisen for businesses and individuals wishing to do so.
As I am sure the Committee will be aware, the new employment status was announced on 8 October 2012, and has been debated extensively as part of the Growth and Infrastructure Act, which received Royal Assent at the end of April. I am sure that you will be pleased to learn, Mr Crausby, that I intend to focus on the tax aspects of the policy set out in the Bill, although I would not be entirely surprised if some of the broader issues were also raised.
The clause and schedule 22 are divided into three main parts. Part 1 relates to the income tax treatment of employee shareholder shares when they are acquired. Part 2 relates to the capital gains tax treatment of the shares when they are disposed of. Part 3 concerns the availability of corporation tax relief when employee shareholder shares are awarded.
As set out last year, the Government will exempt from capital gains tax gains on up to £50,000 worth of shares acquired by employee shareholders. That will enable growing companies to attract and retain talented and entrepreneurially minded individuals by offering the opportunity for a potentially significant tax-free gain on shares in the company.
After last year’s announcement, the Government recognised that the tax treatment of shares awarded under employee shareholder status was causing concern to prospective users and could be a barrier for many who would like to be employee shareholders. We therefore announced in the Budget that the first £2,000 of share value would effectively be exempt from income tax or national insurance in most cases. That will ensure that most employee shareholders receiving only the minimum amount of shares will not be subject to any up-front tax charges.
The statutory corporation tax relief available to companies awarding employee shares is broadly linked to the operation of rules for taxing employment income, or the amount that is or would be taxable when the employee acquires the shares. The special income tax rules for employee shareholder shares mean that it is necessary to make consequential modifications to the corporation tax provisions. The modifications ensure that corporation tax relief is available for employee shareholder shares on the same basis as it is currently available in other cases in which an employer issues shares to an employee for no payment. All these tax reliefs are subject to certain conditions being met; in particular, there are a number of anti-avoidance provisions in the legislation to prevent misuse of the new status.
The Government expect that the new employment status will particularly benefit fast-growing small and medium-sized companies that want to create a flexible work force. It will, however, be open to all companies, although we recognise that it will not be appropriate for everyone. It is intended that the new status and associated tax reliefs will take effect from 1 September 2013.
I am well aware that the new employment status received scrutiny and criticism as the Growth and Infrastructure Bill passed through Parliament. The Government considered the comments made by peers in the other place and tabled a number of amendments. On 16 April, the Government introduced an amendment to make it clear that no one receiving jobseeker’s allowance could be obliged to take up an employee shareholder job offer. On 23 April, two further amendments were introduced. The first requires employers to provide a written statement of the details of the employee shareholder offer before it can be accepted; the second requires that the prospective employee be given seven calendar days to consider the offer before acceptance. A final amendment requires that an individual considering a job under the new status must receive independent advice on the terms and effect of the proposed employee shareholder agreement and that the employer should bear the reasonable costs of that advice.
Each of the amendments ensures that individuals considering the new status are well informed and cannot be forced into taking up employee shareholder status if they do not wish to do so. The status is a purely voluntary undertaking between employee and employer. The Government believe that the new employment status is an important measure that will stimulate business and entrepreneurial activity in a way that is fair and rewarding for those who agree to accept it and is attractive for fast-growing companies that wish to use it.
I turn now to amendments 56 to 59. Section 31 of the Growth and Infrastructure Act 2013 requires that an individual considering whether to adopt the new status must receive independent advice on the terms and effect of any new employee shareholder agreement; reasonable costs of that advice must be met by their employer. Under normal tax rules, that could create a benefit or receipt that is taxable on the individual as employment income, although the exact tax consequences would depend on the particular circumstances of the individual and the advice provided. The Government amendments provide certainty to prospective employee shareholders that they will not face a tax bill for receiving that advice. I can also confirm that corresponding changes to the NICs regulations will be made to ensure that neither employee nor employer NICs will be due on the cost of the advice.
Amendment 51, tabled by the Opposition, calls for a review to be conducted and placed in the House of Commons Library, this time on the potential impact of the clause on tax avoidance activity. I am aware that there are some concerns that the new status will introduce avoidance risks into the tax system. We have already looked to respond to those concerns, while keeping the operation of the new status as simple as possible for employers and employees to use.
In particular, the legislation contains a number of provisions aimed at preventing abuse of the new status. For example, there are rules that will stop people with a material interest in a business from exploiting the tax reliefs for the benefit of themselves or their families and to prevent tax advantages applying where there is multiple use of the status through connected companies.
The Government have also published a tax information and impact note on the HMRC website, which includes an assessment of the expected impacts of the tax changes covered by the clause. That is in addition to the impact assessment published by the Department for Business, Innovation and Skills on employee shareholder status. In any case, it would not be appropriate to publish a further document to the time scale proposed. The new status aims to enable employees to benefit from the company’s long-term growth. It is not due to come into force until 1 September.
The capital gains tax relief will apply only when employee shareholders sell their shares. In many cases, we expect that to be some time later, especially as we believe that many employee shareholders will want to retain shares over the long term to benefit from the growth to which they are contributing. It will, therefore, take some time for meaningful information on the take-up and the use of the status, and its tax reliefs, to become available; it will certainly not be available after six months.
Nevertheless, in both what we have said and done as a Government, we have made clear that we find aggressive tax avoidance and tax evasion unacceptable. Should it become apparent that the new status is subject to particular forms of abuse, we will take the appropriate action. I therefore ask the hon. Members from the Opposition to withdraw their amendment.
In conclusion, the tax relief set out in the clause and schedule forms a key part of the new employee shareholder status, which fosters employees’ commitment to the success of their employer and reduces burdens on business in a new and innovative way. I hope that amendments 56 and 59 will be accepted and that the clause and schedule may stand part of the Bill.

Catherine McKinnell: As the Minister outlined, the clause introduces schedule 23, and both concern the tax treatment of employee shareholder shares, a rather strange measure created by section 31 of the Growth and Infrastructure Act 2013. The provisions exempt any capital gains on the disposal of up to £50,000 worth of shares, acquired by employee shareholders under their employee shareholder agreement, from capital gains tax. The Minister also outlined how the clause works and he introduced the Government’s amendment to it.
As members of the Committee will be aware, however, and as the Minister acknowledged, there has been a lot of opposition to the measure. As the official Opposition, we very much oppose it because we object to the notion of linking the concept of employee ownership, which we support, with employees being expected to give up their basic rights in the workplace.
We also have serious concerns about the measure’s implications in terms of tax avoidance. Those concerns are shared by a wide variety of organisations and individuals across the political spectrum.

Paul Uppal: If the hon. Lady does not accept the argument on share ownership, is she not moved by the announcement made at the weekend by the right hon. Member for Morley and Outwood (Ed Balls) that a future Labour Government—if the country had the misfortune of that—would announce a cap on the state pension? Essentially, people are looking for financial security and this measure will help secure the financial future of many workers.

Catherine McKinnell: Without doubt, Mr Crausby would rule me out of order if I delved into such broad policy areas that do not relate to the specific measures that we are considering. The hon. Gentleman makes light of the measures, but they are deeply concerning and I will explain why. I am surprised he is not taking the potential implications of the measures more seriously.

Stephen Doughty: My hon. Friend mentions the opposition from across the political spectrum. Was she not surprised to read the comments from Lord Forsyth in the debate in the other place? He said:
“Frankly, I am surprised that this clause has survived so long. The scheme is ill thought through, confused and muddled.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 597.]
It has,
“the trappings of something that was thought up by someone in the bath...It is a foolish measure”. —[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 614.]
That was said by a Tory former Minister with responsibility for employment.

Catherine McKinnell: I thank my hon. Friend for his intervention. We could detain the Committee all day by reading out quotations from the wide spectrum of people, organisations and indeed former Conservative Ministers and Cabinet members in the Lords who have deep concerns about the measure. That is also why we are disappointed that our amendment 53 and new clause 3 were not selected for debate. We feel strongly about the policy and its impact on employment rights.
Amendment 51, which we are considering now, asks the Government to review the overall impact of the measure specifically on tax avoidance activity. It is critical that the Treasury monitor it very carefully. As Committee Members know, the policy of employee shareholders shares, more commonly known as “shares for rights”, was first announced by the Chancellor of the Exchequer at the Conservative party conference in October 2012. I will quote from his speech:
“Today we set out proposals for a radical change to employment law. I want to thank Adrian Beecroft for the work he has done in this area. This idea is particularly suited to new businesses starting up; and small and medium sized firms. It’s a voluntary three way deal. You the company: give your employees shares in the business. You the employee: replace your old rights of unfair dismissal and redundancy with new rights of ownership. And what will the Government do? We’ll charge no capital gains tax at all on the profit you make on your shares. Zero percent capital gains tax for these new employee-owners. Get shares and become owners of the company you work for. Owners, workers, and the taxman, all in it together. Workers of the world unite.”
I hear muttering.
It would be faintly amusing were the idea itself not so appalling. My hon. Friend the Member for Cardiff South and Penarth has already quoted the Conservative peer and former Minister with responsibility for employment, Lord Forsyth, who described the idea as
“positively dreadful”
with
“all the trappings of something that was thought up by someone in the bath.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 613-614.]
Of course, perhaps knowing perfectly well that the proposal had virtually no backing, the Chancellor’s announcement on 8 October was followed very rapidly by a consultation, which opened on 18 October and closed just three weeks later on 8 November. The Growth and Infrastructure Bill containing the proposal was published on the same day that the consultation closed, which says everything we need to know about the Government’s intention to actually listen to the consultation and act on it.
Despite overwhelming opposition, with fewer than five out of the 209 organisations that managed to respond to the consultation in the time permitted saying that they were in favour of the idea, the Government ploughed on anyway. Thus, in relation to the tax treatment of employees, the Chancellor confirmed in the 2012 autumn statement on 1 December—some would consider that winter rather than autumn—that they were,
“considering options to reduce income tax and NICs liabilities that arise when employee shareholders receive shares, including an option to deem that employee shareholders have paid £2,000 for shares they receive.”
The measure was subsequently included at Budget 2013.
The employee shareholder status was originally due to be implemented in April this year, but—as the Minister outlined and the Red Book indicates—it has already been pushed back to September. It is therefore important to understand exactly what it will mean in practice. In return for paying no income tax and NICs on the first £2,000 of any shares and being exempted from capital gains tax on the first £50,000, employees will give up the right not to be unfairly dismissed, the right to a redundancy payment, the right to request flexible working and the right to leave for study or training and will have to give 16 weeks’ notice rather than the normal eight weeks before returning to work from maternity leave or adoption leave. It is worth noting that the latter two will disproportionately impact female employees, which is somewhat begrudgingly noted in the tax information and impact note.
I want it to be absolutely clear that the Opposition do not oppose the concept of employee ownership. Such schemes have significant benefits for both employers and employees, but we strongly object to the idea being linked to the removal of employment rights. The Employee Ownership Association also takes that view and has said:
“The decision to allow [Section 31] of the Growth Bill, in which worker rights on such matters as redundancy and unfair dismissal have to be sacrificed by employees in order for them to be allowed an ownership stake in the business in which they work, is hugely disappointing.
There is absolutely no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership. All of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving because they enhance not dilute the working conditions and entitlements of the workforce.”
Liberal Democrat peer, Baroness Brinton, made a similar point on Report during the passage of the Growth and Infrastructure Act 2013:
“Morale is important because while the shares in an SME are unlikely to yield high returns in the first few years, if any at all…after a company is founded, especially during this period of low consumption and investment, it has to find ways of motivating employees to help get the business off the ground.”

Paul Uppal: Will the hon. Lady give way?

Catherine McKinnell: I will just finish quoting Baroness Brinton:
“It might offer flexible working hours and shares without links to a cut in employment rights. The founders of such firms have been offering shares without any removal of rights for years, and it works. Why would they take up a proposal that destabilises the employee and the company?”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 606.]

Paul Uppal: For the sake of clarification, my initial intervention was not flippant in any way; I am quite serious about this. I have run my own business, as have many members of my extended family, and having people come to work but not visualising it as such is always effective. Expanding the idea of employee ownership—there is always an element of trust—creates an environment that is conducive to people feeling that they have a connection. Rather than being employees, they feel that they are employers as well. It creates a relationship of trust.

Catherine McKinnell: I accept the premise of the hon. Gentleman’s point, but he seems to ignore my point and the point that Baroness Brinton, whom I was quoting, was making. In the experience of the organisations that fed back on the proposal, that trust and feeling of shared ownership is better achieved when there is no trade off against employment rights. Indeed, Lord O'Donnell, the former head of the civil service, said:
“If an employer is offering this, they are probably the kind of employer that you do not want to go near. If an employee accepts it, it is probably because they do not really understand what they are doing. On those grounds, it is bad.” —[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 617.]
The former Conservative Cabinet member, Lord King of Bridgwater, also remarked:
“As soon as I heard the announcement of this proposal and of the brief period of consultation which would take place on it—and I understand that 92% of those who responded to the consultation were against the proposal—I carried out my own consultation. I have not found anybody yet who is in favour of the proposal or who says that they think that they will use the provision.” —[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 611.]
Many concerns have been expressed by many business organisations about this risible idea. I give credit to the hon. Member for Wolverhampton South West for his loyalty in trying to defend the Government’s measure, but few companies or business organisations understand the rationale for the measure or what the Government hope to achieve with it. It is little wonder that the Government suffered two embarrassing defeats in the other place, on the independent legal advice that would need to be given in return for employees giving up their shares and on the cooling-off period. They are both vital concessions, but the Opposition do not consider them to be enough.
Lord Bishop said:
“Permitting companies to purchase certain rights in this way seems ethically wrong in principle. It is foremost the precedent of allowing employment rights to be bought and sold like a commodity that…must be rejected. Basic safeguards against unreasonable employer behaviour should not have a price tag attached to them.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 609.]
Perhaps the most cutting comment of all was made by Lord Deben, who simply stated,
“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life.”—[Official Report, House of Lords, 6 February 2013; Vol. 743, c. 293.]
There are serious concerns about exactly how this divisive measure will benefit employers and employees, about how it undermines the employee ownership model, about the pressure that existing and new employees may come under to participate, and about what will happen to those employees who took up this option when the going gets tough for a firm.
I will focus on the implications of the clause for the Exchequer. The 2012 autumn statement policy costings assume that the overall cost to the Exchequer of the measure will be £20 million in 2016-17, rising to £80 million in 2017-18. The costings note that
“The main uncertainties are around assumptions on take up rates, the average value of shares that are entered into the scheme, the extent of tax planning and the timing of disposals.”
In its certification of the costings, the Office for Budget Responsibility said:
“there are a number of uncertainties in this costing. The static cost is uncertain in part because of a lack of information about the current Capital Gains Tax arising from gains on shares through their employer. The behavioural element of the costing is also uncertain for two reasons. First, it is difficult to estimate how quickly the relief will be taken up; this could make a significant difference as the cost is expected to rise towards £1 billion beyond the end of the forecast horizon. Second, it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning”.
In contrast, the Government’s impact assessment of the measure, published belatedly after the consultation closed, made no mention of either tax planning or the potential £1 billion cost to the Exchequer. That issue was highlighted by the director of the Institute for Fiscal Studies, Paul Johnson, in a Financial Times article aptly entitled “Shares for rights will foster tax avoidance”. He wrote:
“There may be a case for more flexible approaches to employment legislation. But as a tax policy, ‘shares for rights’ always looked pretty questionable. At a time of increasing scrutiny of tax avoidance schemes, it has all the hallmarks of another avoidance opportunity.”
He went on:
“So, just as concern over tax avoidance is at its highest in living memory, just as government ministers are falling over themselves to condemn such behaviour, that same government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry. Its own fiscal watchdog seems to suggest that the policy could cost a staggering £1bn a year, and that a large portion of that could arise from ‘tax planning’.”
Of course, the scheme may well have the apparently unintended consequence that employee shareholder shares may be used for senior employees or executives in management buy-out situations, or more generally to access tax reliefs, provided the material interest provisions do not block their availability. For senior executives, shares with a low up-front value and significant potential for upside could be used to take advantage of the tax reliefs, while at the same time statutory rights foregone may just be written into senior employees’ and executives’ contractual documents.
It is bad enough that the policy is divisive and damaging and undermines the notion of employee ownership, but it could cost the Exchequer up to £1 billion, with a quarter of that arising from tax planning or tax avoidance activity. How will the Government ensure that the measure benefits ordinary workers and not just those senior employees and executives at the top? Given the Government’s tough talk about clamping down on tax avoidance, it will be particularly helpful if the Minister addresses those points.
Further concerns about the practicalities of the scheme for business and how it will be managed by HMRC have been raised. The Chartered Institute of Taxation has expressed concern about the impact on small, unquoted companies, which is especially worrying given the Chancellor’s original announcement that the policy would be “particularly suited” to new businesses and SMEs. For the scheme to operate, the value of any shares will need to be agreed before being issued; as the CIOT has pointed out, that is particularly important as the shares must be valued at more than £2,000 for the scheme to be engaged. If the shares allocated prove to be worth £1,999, the income tax and national insurance contributions exemptions will be lost, so valuation is clearly critical to how the measure will function.
Can the Minister explain how that is to be done in a timely fashion for small, unquoted companies? Will it involve HMRC’s share valuation unit? If so, what plans do the Government have in place to ensure that this unit is sufficiently resourced and that demand and expectations for share valuation agreements are managed? What thought have the Government given to how the scheme relates to company law restrictions on issuing shares for less than their nominal value? There may be an argument that entering into an employee shareholder agreement represents payment of a nominal value for the shares, and therefore the company law restrictions do not apply. Clearly, though, public companies would need to secure an independent valuation for this purpose. Otherwise, if entry into the employee shareholder agreement is not regarded as adequate consideration for the nominal value of the shares, a company will need to have sufficient profits available for distribution, which it can apply to issue shares to the employee without breaching company law, which will add further complexity to the Government’s measure.
A further concern expressed by the CIOT about the operation of the scheme relates to share buy-back where there is not a ready market for the shares, which it says will be “difficult for many companies”. The Government’s summary of responses to their consultation states:
“the Government believes that sufficient mechanisms already exist for employers to sell shares to their employees and for employees to buy and sell them back to the company.”
However, both the CIOT and the Office of Tax Simplification regard that as questionable, so I would be grateful if the Minister replied to those concerns as well.
Finally in relation to the operation of the scheme, the CIOT has drawn attention to what happens to old shares that are exchanged for new shares as part of a company reorganisation. The legislation on the measure suggests that new shares will cease to be exempt from capital gains tax, which the CIOT describes as
“a surprising outcome when the employee has not realised any value from the shares.”
Will the employee be deemed to have acquired the new shares at the open market value, plus the gain on the old shares, so at least any gain accruing from the old shares prior to the exchange is effectively exempted from capital gains tax? If not, will the value in having employee shareholder shares be lost?
In conclusion, I return to the thoughts of the former Employment Minister and Conservative peer Lord Forsyth. When asked about the proposal back in October on the BBC’s “Daily Politics” he replied:
“I couldn’t work out what problem”—
the Chancellor—
“was trying to solve. If the problem is that people want to take on workers but they’re not sure—particularly young workers—and they’re worried that if they take them on they will be very expensive to fire them, because they’ll threaten to go to a tribunal—legal costs will be enormous—I don’t see how having a scheme to give them shares in the business if they give up their employment rights is going to be in the interests of the employer or the employee, because they end up with shares in an unquoted company which they can’t deal with, and the incentive is apparently that there will be a benefit because you won’t have to pay capital gains tax. Well everybody’s got a £10,000 gains tax allowance before they have to pay any capital gains, so that doesn’t seem to be much of an incentive.”
He finished as he started, concluding:
“I just wonder what problem he is trying to solve.”
Eight months later, we still do not know what problem the Chancellor is trying to solve with the measure, yet grave concerns remain about its impact, particularly on employment rights and on tax avoidance activity.

Ian Mearns: I wonder whether Government Members expect the inducement to a new member of staff in some of those schemes to be shares worth massively more than £10,000.

Catherine McKinnell: I think we are all pondering exactly what the intention is and what Government Members are thinking in supporting a measure that has been roundly criticised as rather hare-brained. I would be grateful if the Minister responded to those concerns and to our reasonable amendment calling for a review of the impact of the measure on both individual rights and on tax avoidance activity, which is a key concern for everyone in the country and should be the key concern for the Treasury at the moment.

David Gauke: I will focus most of my remarks, as the hon. Lady has, on tax avoidance and cost, but I want to respond to her more general comments and refer to the purpose behind the measure.
We received many representations from businesses that are concerned that the actual and potential costs of employment rights can be a deterrent to taking on staff. Employee shareholder status is one way of addressing those concerns and of furthering the Government’s objective of increasing employee involvement in the success of their employers. We are taking a host of other measures to support the objective of employee ownership. From next year, we will provide £50 million annually to further incentivise growth in employee ownership, in response to the Nuttall review. From 30 April, we relaxed rules that apply where certain companies purchase their own shares, for example, as in employee share arrangements. At the Budget, we announced capital gains tax relief for the sale of a controlling interest in a business to an employee ownership structure, which will be introduced in 2014. We have also arranged for the introduction of a model trust deed, which businesses can use if they wish to move to an indirect model of employee ownership. This measure therefore has to be seen as part of a wider agenda to make employee ownership more attractive, which I hope is supported by all parties.

Stephen Doughty: The Minister mentioned the businesses that are in favour of the scheme. How many businesses did he hear from that are interested in taking up the scheme or think it is a good idea? Does he have a specific figure or perhaps some examples to share?

David Gauke: I will quote the chairman of the Federation of Small Businesses, John Walker, who said:
“We believe it will promote share ownership and loyalty to those companies which offer this initiative, with potential benefits following in terms of greater productivity.”
The director general of the British Chamber of Commerce, John Longworth, said:
“The plans would particularly aid new and fast-growing businesses.”
Simon Walker of the Institute of Directors said:
“This scheme has the potential to reduce...burden[s] on companies and make employees better off at the same time.”
Just to complete the point, not long before the announcement was made, I met an overseas business that was looking to expand in Europe and was deciding where they should do so. They raised two concerns, entirely unprompted, about the UK: one was the costs incurred due to employment rights, and the second was that the UK’s share incentive regime was not as generous as they would like. That is a specific case I know about—I will not name the company. That is part of the concern that we seek to address, to make the UK an attractive place.
No one is arguing that this is the right mechanism for all businesses. It is worth stressing that it is an entirely voluntary arrangement, both for businesses and individuals. It will not suit everyone, but that is not a reason to deny the option to those who do want to use it.

Stephen Doughty: The Minister quotes the FSB, but he will recall that the FSB said that the scheme was unlikely to be appropriate for many small businesses. I want to press him again on this point. One would expect, if it were such a great thing, a clamour from businesses writing to the Government, inside and outside the consultation, to say that they want to see it go ahead. Can he give us a figure of the number of businesses—as opposed to representative organisations—that wrote in? If he does not have the figure, perhaps he could write to the Committee and tell us how many.

David Gauke: I do not disagree, if the hon. Gentleman is arguing that the FSB says it is not appropriate for lots of small businesses. It is not appropriate for every business. We are arguing that it is appropriate for some businesses. Being inappropriate for many businesses does not mean that it will not be appropriate for some—for example, a fast-growing business with staff who want to commit to the business, or an entrepreneurial undertaking where it may not necessarily work, but there is a group of people who together want to make it work. This measure would provide a degree of flexibility. I will give way to my hon. Friend who knows something about business.

Brooks Newmark: I remain perplexed about why the Opposition continue to baulk at this proposal. I congratulate the Government on the initiative because it is about giving individuals choice. Does the Minister agree with the point made by my hon. Friend the Member for Wolverhampton South West? The measure gets employees to think a little bit more like owners. Aligning interests with ownership will help build a company, because people will think more like owners and less like employees. To emphasise the Minister’s point, no one is twisting an employee’s arm to take this on, and no one is twisting a company’s arm to adopt the scheme.

David Gauke: My hon. Friend is right on both points, which he put well. It is worth bearing in mind that there are arrangements whereby people are employees and have a full range of employment rights. There are also circumstances whereby somebody may be self-employed, perhaps a partner in a firm, in which they lose pretty well all their employment rights.
The proposal would create a new arrangement that is somewhere between those two situations. An employee will potentially be more like an owner and, in those circumstances, one would expect there to be some changes to employment rights. It is also worth pointing out, however, that employee shareholders will continue to enjoy many important statutory rights, such as the right to paid holiday, protection from discrimination at work and a safe environment.
I underline the point made by my hon. Friend the Member for Braintree. Whether a person is a prepared to give up the specific rights involved will be a decision for them, based on their own circumstances and the terms offered by the employer company.
We have introduced several safeguards to ensure that anyone considering an employee shareholder offer will receive full details of what that involves as well as independent advice.
Let me deal with the costs. The hon. Member for Newcastle upon Tyne North raised the OBR estimate of a £1 billion cost. It is worth pointing out that the OBR has certified the costs of the tax reliefs attached to the new status. In total, the reliefs are expected to cost £120 million by the end of the scorecard period in 2017-18. That is made up of £45 million for the CGT exemption and £75 million for the income tax and national insurance contribution changes. We believe that those costs are proportionate in achieving the policy’s aims.
It is true that the OBR originally commented that the cost of the CGT exemption could rise towards £1 billion beyond the end of the forecast horizon. Those comments, however, require some clarification. First, the OBR was unable to take account of the anti-avoidance provisions now included in the Bill. Secondly, estimating the long-term costs of targeted measures like this is an inherently uncertain business. It depends on many factors, not least take-up, which the OBR notes is difficult to predict. Furthermore, any rise towards £1 billion would occur well beyond the end of the forecast period of 2017-18. In fact, the figure referred to by the OBR goes beyond the 2020s.
The figure of £1 billion taken in isolation simply does not tell the whole story. Best estimates of the cost of the CGT measure have now been refined and show it increasing to £45 million in 2017-18. It is also worth pointing out that the OBR’s more recent comments on the Budget costings again mention the uncertainties involved, but no longer provide any projected figures for the long-term cost.
As for the concerns about tax avoidance, the tax reliefs are intended to encourage the take-up of employee shareholder status by individuals where it is offered to them, but are not an end in themselves. There are a number of rules in the Bill to prevent abuse of the new status, while keeping it as simple as possible for employers and employees to use.
It would perhaps be helpful to the Committee, given the focus of the hon. Member for Newcastle upon Tyne North on tax avoidance, to look at some of the measures involved. There are rules to prevent those who are in a position to control a company from getting the tax reliefs if they control 25% or more of the voting power in the company. There are similar rules to prevent people connected to those who can control the company, such as spouses or children, from benefiting from the reliefs. Individuals cannot get multiple reliefs by entering two consecutive employee shareholder contracts with the same company or related companies. People will not be able to use company liquidations to realise their gains and then get more reliefs on new shares under the same control. We will require two years to pass between the liquidation of the company and the employee receiving further exempt shares in a related company. The Bill will prevent the manipulation of share values by, for example, placing restrictions on the values.
The issue of whether employers and employees will need to know the value of the employee shareholder shares and what HMRC will do to help them was raised. HMRC will consider and, where possible, confirm for tax purposes the share valuations that are put to it. It will do that before the shares are given as employee shareholder shares, and any confirmation will be valid for a specified time to allow the shares to be issued. That will provide certainty to both employer and individual that the shares meet the minimum value of £2,000 and confirm the values on which tax and reliefs can be calculated. HMRC provides an assurance service in real time to consider the share valuation provided by an employer. It is not a formal share valuation service. It ensures that an employer and a prospective employee shareholder can gain confirmation of value in a timely manner. Employee shareholder status is essentially an agreement between the employer and the employee, entered into with the full understanding of both sides.
I was also asked whether it was unfair if the capital gains tax exemption were lost as a result of an internal reorganisation or a takeover—the point about old shares to new shares. There will be a rebasing when new shares are received, but no CGT charge will be made at that stage. To put it another way, the tax exemption is not wholly lost when employee shareholder shares are involved in a reorganisation of share capital or takeover. Indeed, without the special rule that we are introducing, gains accruing before the reorganisation or takeover will be taxed in full when new shares are sold. That would be unfair, so we are making sure that gains attributing to the period between receiving the shares and the reorganisation or takeover on which the shares are surrendered will continue to be exempt from tax.
As for whether the measure will benefit only the wealthy, it is worth saying that it is designed to stimulate business and entrepreneurial activity. It is expected that it will appeal to a range of employees, particularly those working in fast-growing companies. It will give them a real and valuable stake in the future of the company for which they work, which could be well above the annual exempt amount for CGT purposes. I appreciate that the measure does not have the support of all members of the Committee, but it is a useful addition to the process in the United Kingdom. It will provide further flexibility and help fast-growing and entrepreneurial businesses. It will attract and retain staff, and I welcome it. The Government are pleased that we will have it in place.

Ben Gummer: My hon. Friend has made a persuasive speech. It is an interesting matter, and we have had an interesting debate. Can he comment on those directors who might misuse the measure? He put forward a positive argument about where it might fit into the general employment pattern in the United Kingdom. I used to work in the construction sector. Some of its elements attracted particular pond life, and I can imagine some people with whom I used to do business misusing the measure, if they chose to do so, by setting up sham companies, employing people in them, dissolving the companies and making use of the absence of employment rights to abuse their workers. That would be a misuse of what the Minister has convinced me is a good scheme. What will he be able to do to ensure that that does not happen and, if it does, that those directors are held responsible for their fraud?

David Gauke: I refer my hon. Friend back to a couple of issues, the first of which is that not all employment rights are lost in such circumstances. Employee shareholders will continue, for example, to have protection from discrimination at work and be able to work in a safe environment. Protections will be available.
Employees will also have provided to them a summary of the status and what it would involve. They would have the opportunity to consider it for seven days before accepting the arrangements. Some of my hon. Friend’s worry relates to the ability to misuse the measure as a tax avoidance arrangement, using liquidations to benefit again and again. There are sufficient protections in the Bill to prevent that from happening. There are steps designed to deal with such misuse.
The focus, and I suspect the take-up, will be on fast-growing businesses that want to ensure that they can incentivise their work force. I suspect that the type of sector that gets most use out of the measure will be technology companies, for example, that want to have a broad base of committed, well-motivated and incentivised staff who expect and hope that their business will expand rapidly and want to share in the gains. That is where we are coming from.

Catherine McKinnell: I appreciate the Minister’s sincere reply to the sincere and legitimate concern of the hon. Member for Ipswich. However, I have to dispute what he says about employees retaining sufficient rights, because they will lose the fundamental right that relates to unfair dismissal. The clue is in the title—a dismissal that is unfair. That is a fundamental right for an employee.
The Minister makes a good case for our amendment. If he is so confident about the types of business that will benefit from the measure and the way in which they will do so, I assume that the Government would want to keep a close eye to ensure that the Bill is being used for those purposes and that it is not being used for tax avoidance or abusive purposes. Therefore, I expect the Government to support our amendment.

David Gauke: I will conclude by returning to my earlier point about the weakness of amendment 51, given that the focus of the remarks is on tax avoidance and so on. The arrangement would provide an exemption related to CGT, which is paid on a capital gain, hence the title. It will take some years to have the details that the hon. Lady seeks. It will take some years for people to participate in the arrangement, for companies to grow and for a capital gain to be realised when somebody sells the shares. The idea that in six months, following Royal Assent, we will be in a position to make a full assessment of that is clearly wrong. That is one concern.
In addition, although I appreciate that Oppositions table amendments requiring reviews and Governments then by and large reject them, in this case, a review six months after the policy is introduced, given that it is a long-term policy whose effects will occur over the long term, would be a great mistake.
I hope that I have provided clarification for the Committee and persuaded my hon. Friend the Member for Ipswich. Members of his family can, in general, be persuaded on these matters if the case is put persuasively.

Amendment 56 agreed to.

Amendment proposed: 51, in clause54,page27,line5,at end add—
‘(2) The Chancellor of the Exchequer shall review the impact of this section on tax avoidance activity, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.—(Catherine McKinnell.)

Question put, That the amendment be made:—

The Committee divided: Ayes 10, Noes 18.

Question accordingly negatived.

Clause 54, as amended, ordered to stand part of the Bill.

Schedule 22  - Employee shareholder shares

Amendments made: 57, in schedule 22,page326,line31, leave out ‘(c)’ and insert ‘(d)’.
Amendment 58,in schedule 22, page333,line18, leave out ‘(c)’ and insert ‘(d)’.
Amendment 59,in schedule 22, page339,line8, at end insert—

‘Part 3A

36B In Chapter 11 of Part 4 of ITEPA (employment income: miscellaneous exemptions), after section 326A insert—

“Employee shareholder agreements

326B Advice relating to proposed employee shareholder agreements
(1) No liability to income tax arises by virtue of—
(a) the provision of relevant advice by a relevant independent adviser, or
(b) the payment or reimbursement, in accordance with section 205A(7) of the Employment Rights Act 1996, of any reasonable costs incurred in obtaining relevant advice.
(2) “Relevant advice” means—
(a) advice, other than tax advice, which is provided for the purposes of section 205A(6)(a) of that Act (advice as to terms and effect of employee shareholder agreement), and
(b) tax advice which is so provided and consists only of an explanation of the tax effects of employee shareholder agreements generally.
(4) In this section—
“employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of that Act);
“relevant independent adviser” has the meaning that it has for the purposes of section 203(3)(c) of that Act.”’.—(Mr Gauke.)

Schedule 22, as amended, agreed to.

Clause 55  - SEIS: income tax relief

Question proposed, That the clause stand part of the Bill.

Brooks Newmark: As the Minister will be aware, the seed enterprise investment scheme is dear to my heart, and I would to like to put on the record my thanks to Lord Young of Graffham and Rohan Silva in No. 10 Downing street for the work that they have done in creating such a great initiative. There is a great problem when it comes to raising finance in this country, particularly at the lower end where many companies rely on angel investors. SEIS turbo-charges the incentives for angel investors to provide capital to start-ups, where the need for money is greatest nowadays. The extra incentive, beyond the enterprise investment scheme, of 50% income tax relief on investments has been highly attractive. SEIS has been in operation for only a year, however, and every little bit extra that the Government can do to incentivise angel investors to provide capital is to be welcomed. For that reason, I would like to put on the record my support for clause 55, particularly subsection (4), which introduces the concept of the “on-the-shelf period”. The measure will give investors an extra opportunity to join in with the great initiative that the Government have provided.

Catherine McKinnell: It is an honour to follow the hon. Gentleman. Clause 55 makes clarifying amendments to the seed enterprise investment scheme requirements, which currently prevent off-the-shelf companies that are formed by company formation agents from using the seed investment vehicle. The Opposition of course support the provision of help for business start-ups; nothing is more important in the current economic circumstances, which continue to be extremely challenging. Confidence is absolutely key and is thin on the ground for many small businesses, which still have great difficulty accessing bank lending.
In last year’s Finance Bill Committee, we discussed at some length the continued problems with bank lending, as well as the countervailing issue of introducing supply-side measures when the fundamental problem in the economy is a lack of demand. I want to touch briefly on a couple of the issues raised in those debates, as this is a useful opportunity for the Minister to provide an update on progress. Committee members, who I am sure scour Hansard daily for this issue, will be aware of a recent answer by the Minister to a written parliamentary question on 11 March, which stated:
“No benchmarks or targets have been set.”
However, he explained that the Government have
“estimated that 300 completely new companies will benefit from SEIS in the first year. In total 1,000 companies will benefit from investment under the scheme.”—[Official Report, 11 March 2013; Vol. 560, c. 40W.]
An answer to an earlier parliamentary question given by the Minister in January showed that HMRC has approved investments totalling £7 million for about 85 companies. Therefore, given that the first year of the scheme’s operation has concluded, will he provide an update on that figure of 300? It might not be a target, but has it been met or exceeded? How confident are the Government that 1,000 companies will benefit and in what time frame? How much investment has HMRC approved under the scheme to date?
At the moment, the unemployment figures are deeply concerning: we have 2.52 million people out of work. Of those, 958,000 are young people and there is also a significant number of long-term unemployed. Will the Minister update the Committee on how many jobs have been created by SEIS approvals, and have the Government assessed how many jobs might be created through the scheme?
I appreciate that creating significant numbers of jobs is not the scheme’s intention—
 Mr Newmark  rose—

Catherine McKinnell: Have I anticipated the hon. Gentleman’s intervention?

Brooks Newmark: Yes. The hon. Lady makes a valid point: the scheme is attractive and it has attracted firms to participate. She might perhaps ask the Minister whether he has considered raising the cap, because there is a limit on the number of employees that a qualifying SEIS company may have—I believe it is about 25—that limits opportunities. Does the hon. Lady agree that there should not be an employee cap?

Catherine McKinnell: It would be useful if the Minister would reply to those comments. The scheme might not have the intention of creating jobs, but as the unemployment figures are deeply concerning those companies could provide a boost to sustainable private sector growth that would, I hope, create good quality, sustainable, decent jobs for many people.
On the question of the specific change to clause 55 and the use of shell companies, the tax information and impact note states clearly that this is a simplifying measure to ensure that:
“eligible companies will not inadvertently be disqualified from taking advantage of the regime, by virtue of having been established by a corporate formation agent.”
The decision—inadvertent or otherwise—originally to exclude off-the-shelf companies was strongly criticised by, among others, the Chartered Institute of Taxation, which welcomes the change made by this year’s Bill.
Queries have been raised, however, about why the amendment, which corrects what the Government effectively admit is an unintended trap, is not backdated to the start of the SEIS scheme, which would allow some SEIS users to climb out of the trap into which they might have inadvertently fallen. Will the Minister address that point? In that same regard, will he confirm what assessment the Government have made of the number of off-the-shelf companies that may have been inadvertently excluded from the scheme?
The impact note suggests that the change under the clause will have no impact on the Exchequer. Will the Minister outline how many additional companies the Government have assessed will benefit from the change?
Finally, Committee members will be aware that the shadow Minister for small businesses, my hon. Friend the Member for Chesterfield (Toby Perkins), launched a small business taskforce report entitled “An Enterprising Nation”. The findings of that report, commissioned by the Leader of the Opposition and the shadow Business Secretary and based on the work of the taskforce and its late chair, Nigel Doughty, suggested that SEIS was being hampered by the following important limitations:
“Founders are unable to invest their own money via SEIS...There is a disincentive for Founders with personal capital to deploy it into their own businesses. For those Founders without capital, ‘bootstrapping’ a business using salary income from another job is extremely expensive as only post-tax income may be invested…(S)EIS is only available for equity investments, not debt. This has two major disadvantages. First, it makes finance much harder to obtain for those businesses unable or unwilling to issue equity. Second, it creates an additional cost for start-ups because the legal work surrounding equity issuance is typically more expensive than simple investor debt contracts.”
The report recommend that SEIS tax advantages should be extended
“to debt investors (as well as equity) and company founders (as well as third parties). Extended (S)EIS would help individuals to use their pre-tax earnings from a salaried job elsewhere to fund their start-ups. To avoid the cash flow burdens of PAYE being paid and reclaimed much later, a one 28-day ‘rapid rebate’ process should be introduced to permit reclaim of PAYE taxes on income invested in (S)EIS eligible businesses.”
I would be grateful if the Minister can address those concerns, and outline whether the Government intend to make the changes recommended by the Opposition’s small business taskforce.

David Gauke: As we have heard, clause 55 makes changes to the seed enterprise investment scheme. It amends the legislation to ensure that companies established by corporate formation agents are not inadvertently disqualified from taking advantage of the scheme. The Government are committed to ensuring optimal take-up of SEIS by companies that can benefit, and they have responded quickly to correct the flaw in the legislation.
Before I deal with the details of clause 55 I will give a little background to it. SEIS was introduced in the Finance Act 2012, and was intended to help young start-up companies gain access to vital seed funding. It offers generous tax reliefs to individual investors to help channel funding into those companies. There was a good uptake in its first year, and nearly 2,000 companies have expressed an interest in using the scheme.
As of last Friday, HMRC has approved 466 companies, which together have raised almost £33.5 million. The average investment per company is about £71,000. Companies cannot apply to HMRC for approval until they have either spent 70% of the moneys raised or have traded for at least four months. Consequently, those figures do not capture all investment made to date under the scheme.
The Government initially anticipated that 300 new companies would benefit from the scheme. The figure of 466—it is likely to be higher than that—is clearly better than that. I do not know how much of that we can attribute to the efforts of my hon. Friend the Member for Braintree, who has been extraordinarily active in promoting SEIS, but undoubtedly we can attribute some of it to his work—[Hon. Members: “Hear, hear.”]Perhaps all of it. I thank him for his efforts in promoting SEIS.

Brooks Newmark: While I appreciate my hon. Friend’s acknowledgement of my efforts, I would really like him to join me in acknowledging Lord Young of Graffham, whose idea this was. It is an inspirational idea, so will my hon. Friend join me in congratulating Lord Young?

David Gauke: As ever, my hon. Friend not only makes an outstanding contribution in this field, but does so with such modesty. I would like to put on the record my thanks to Lord Young for his efforts on this issue.
At this point I should perhaps deal with the issues that have been raised about employment, having given the take-up numbers. My hon. Friend is correct that there is a limit of 25 employees for SEIS. The existing EIS is there for larger companies with more employees—its limit goes up to 250 employees.
The hon. Member for Newcastle upon Tyne North asked how many jobs have been created as a consequence of SEIS. HMRC does not monitor the level of jobs created. To be fair, we are talking about early-stage companies, so they may not necessarily employ large amounts of people as yet. However, they could, of course, go on to do so. The scheme is part of our efforts to ensure a strong recovery in private sector jobs. Members of the Committee will be aware of the remarkable progress that we have made on that front over the past three years.
The legislation was designed so that companies owned by another company from the point of their incorporation are excluded from participating in the scheme. That feature is intended to prevent established trading companies from temporarily spinning off subsidiaries to allow investors access to the generous tax reliefs on offer. However, it will also disqualify companies that have been established by a corporate formation agent before being sold to their ultimate owners. That is a fairly common way for companies to begin life, and a number of interested stakeholder bodies and individual companies have raised it as an issue.
The exclusion of so-called off-the-shelf companies is unintended and inhibits otherwise eligible companies from benefiting from the scheme. Clause 55 corrects the unintended exclusion to ensure that the scheme benefits as many start-up companies as possible. The changes made by the clause will amend the existing legislation to ensure that a company owned by another company from incorporation will not be excluded, providing that the company has issued subscriber shares only and has not yet commenced any trade or other business.
The clause takes effect in relation to shares issued to individual investors on or after 6 April 2013, which is the start of the tax year for individuals. It does not take effect from April 2012 because we believe that quite a number of companies have already restructured their activities in order to comply with the existing legislation, and it would be unfair on those companies for the amended legislation to have retrospective effects.
On the number of companies caught by the flaw in the original legislation and how many more will now benefit, we believe that only a very small number have been caught—the majority were able to restructure to take advantage of the scheme—and the amendments made by clause 55 will make it easier to benefit without restructuring, rather than increasing the numbers anticipated to use the scheme.
A couple of more general points were raised about the application of SEIS. In particular, I was asked why debt finance cannot qualify for the tax relief and why founders cannot benefit. On debt finance, debt is lower risk than share capital and therefore does not justify the very generous tax relief attached to SEIS. We want to ensure that that is properly focused.
There is a similar point to make with regard to why founders cannot benefit. The incentives are intended to increase external investment to help grow and develop companies. Relief is not available for those who own more than 30% of the company, and that reduces scope for abuse. Entrepreneurs’ relief provides founders with benefit by giving a capital gains tax rate of 10%, which should not be forgotten. The focus of the very generous reliefs involved within seed EIS are external investors who would otherwise be making perhaps a high risk investment and who would not necessarily have all the information to hand in order to make an assessment as to whether that is a sensible investment. So there is a degree of asymmetry of information, but that argument does not really apply when it comes to founders who will be well informed.
In conclusion, the Government launched SEIS in the Finance Act 2012 to help start-up companies raise vital early financing. The clause corrects a minor issue with the legislation to ensure that all companies that should be able to benefit can benefit, and I hope that it can stand part of the Bill.

Question put and agreed to.

Clause 55 accordingly ordered to stand part of the Bill.

Clause 56  - SEIS: re-investment relief

Question proposed, That the clause stand part of the Bill.

Brooks Newmark: Again I would like to reiterate my support for seed EIS and the particular aspect of reinvestment relief. The idea behind reinvestment relief is to turbo-charge the incentives that people have to step up to the plate with this particular opportunity. The idea was that in the first year of seed EIS, angel investors would get not only 50% of their income tax but this idea of roll-over relief. If they made a capital gains, they could then reinvest that in year one and get an extra 28% on the relief for making an investment, thereby taking up the relief to 78% on a particular investment. As the Minister is well aware, over the last six months of last year, particularly over the summer, I travelled to 14 different cities promoting that concept. One of the points made to me was that during its introduction the message did not get off the ground and into the market as fast as it could have done.
Several entrepreneurs have asked why the reinvestment relief was not given for a longer period. I congratulate the Government on listening to what business people have said and extending that roll-over relief on reinvestment, but will the Minister tell us why he is only allowing 50% of it rather than 100% this year, given that such important schemes take time to get out into the market? I encourage the Government to let another full year go by where 100% rather than 50% of the qualifying funds reinvested get the relief. Perhaps the Minister could address that point as well.

Catherine McKinnell: Again it is a pleasure to follow the hon. Member for Braintree. He raised the question that I wanted to put to the Minister, so I too would be grateful for a reply. Obviously, the measure was originally introduced in 2012-13 and has been extended to cover the gains accruing to the investor in 2013-14, but it provides that only half of the invested amount can be set against chargeable gains. Will the Minister clarify the thinking behind that reduction and tell us what assessment has been made? I appreciate that, in response to the discussion on the previous clause, the Minister explained the number of companies that have been improved and the current investment rates, but have the Government anticipated a slowing up or a reduction as a result of the reduced reinvestment allowance? It would be helpful to the Committee if the Minister could respond to those issues and those raised by the hon. Member for Braintree.

David Gauke: Clause 56 provides for a limited extension of the capital gains tax holiday component of the seed enterprise investment scheme. The change will help to ensure that the momentum the scheme has built up during the past year continues and that more investors take advantage of the tax reliefs, and put their money into young, start-up companies.
As we have heard, SEIS was introduced by the Government last year to provide vital financing support for start-up companies. The scheme is proving to be successful. It has received nearly 2,000 expressions of interest from companies seeking to have official assurance that they can use it. On top of the headline 50% income tax relief, the scheme was introduced with a one-year capital gains tax holiday to give it a kick-start and to build interest, and it is that element that will be extended under the clause.
The Government are keen to maintain the momentum—I gave some figures a moment ago—and continue to channel more funding into start-up companies. We are therefore extending the CGT holiday under the clause at a limited rate for another year to gains realised in 2013-14. We regard that as a sensible approach. It means that investors making capital gains in 2013-14 will receive a 50% capital gains tax relief when they reinvest those gains into seed companies in either 2013-14 or 2014-15.
I was asked why we are not continuing the 100% holiday. The CGT holiday was always set out as a temporary measure to kick-start the scheme and create a buzz—that is not a technical tax word. The scheme has worked well and it is picking up some real momentum and interest.
It is also fair to say that we recognise that a full CGT exemption allowed some investors, albeit in fairly unusual circumstances, to benefit from more than 100% tax relief. That could have been damaging to the scheme’s reputation in the long term. We therefore believe that a 50% CGT relief in the second year of the scheme strikes a good balance by offering support to a relatively new scheme without providing over-generous tax incentives. As we are now more than a year on in the life of SEIS and given that awareness increases over time, not least because of the excellent activities of my hon. Friend the Member for Braintree and the efforts of Lord Young, we consider a 50% rate of CGT for the second year strikes the right balance.
In conclusion, the clause provides a limited extension to the capital gains tax holiday component of SEIS. The changes will continue to help momentum in investment in SEIS, thereby ensuring more investment in young, innovative start-up companies, and I hope that the clause will be accepted.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Clause 57  - Disincorporation relief

Question proposed, That the clause stand part of the Bill.

David Crausby: With this it will be convenient to discuss clauses 58 to 60 stand part.

Catherine McKinnell: Clauses 57 to 60 introduce provisions for disincorporation relief following the Office for Tax Simplification report, published in February 2012 as part of a series of reports into the small business tax. As Committee members know, it is a simple matter for an unincorporated business to change from being a sole trader to a partnership, or vice versa. It is also relatively simple to incorporate an unincorporated business, although tax planning is required to minimise disadvantages. However, the Office of Tax Simplification report highlighted that a small number of incorporated businesses operating as limited companies would prefer to operate in an unincorporated form and that various tax charges and administrative issues could be the factor discouraging them from doing so. The purpose of clauses 57 to 60 collectively is therefore to provide a disincorporation relief and so remove those disincentives. I am sure the Minister will give us some more detail on the clauses.
A number of issues have been raised that it will be helpful to put to the Minister before he makes his remarks so that he can address them. The tax information and impact note indicates that around 610,000 businesses will be eligible for the relief. Has there been an assessment of how many businesses will actually take up the measure? It seems to be a step about which businesses may require significant advice; what guidance will HMRC—or BIS, for that matter—be issuing for potential users of the scheme?
It has been suggested that the £100,000 asset limit could substantially restrict the number of businesses that will be able to take up the relief; indeed, the Chartered Institute of Taxation has suggested that most businesses owning land and buildings will comfortably exceed the £100,000 threshold and therefore recommends that the threshold be reconsidered or, at the very least, be kept under regular and compulsory review during the five-year period the relief is intended to run for. Will the Minister confirm whether that suggestion has been considered, and whether it will be implemented?
Will the Minister also outline what will happen to those businesses that take steps to disincorporate but then find that HMRC values their assets at more than £100,000—what will be the impact on their tax bill in those circumstances? The impact note suggests that HMRC may require additional resources to administer the relief; will the Minister clarify what assessment has been made of the resource requirements within HMRC? We are very conscious of the staffing reductions at HMRC; has appropriate consideration been given to resources before placing additional burdens on HMRC?
Both the Chartered Institute of Taxation and the Association of Taxation Technicians have expressed concerns that the relief is not to be extended to tax charges that might arise on shareholders as a result of disincorporation. As a consequence, it is thought that the restrictions will very substantially limit the take-up of the relief, and that many small businesses will continue to be operated through limited companies despite the fact that they do not need the commercial protection of limited liability. If that occurs, an opportunity for simplification of the tax system for small businesses will have been missed. Given that many members of the Committee, particularly on the Government Benches, would not like to see that happen, will the Minister explain the rationale behind the Government’s decision in light of the concerns that have been raised?

David Gauke: Clauses 57 to 60 introduce a new disincorporation relief, which has effect from 1 April 2013 and is available for five years. The relief will make it easier for business owners to move their business to a sole trader or a partnership by removing some of the tax charges.
I will begin with a little background to the measures. Disincorporation is the term we use to describe a transfer of a limited company’s business to one or more of its shareholders; the business is then operated by either a sole trader or a partnership. As hon. Members may recall from earlier debates, the independent Office of Tax Simplification, also known as the OTS, published its final reports into small business tax in February 2012. The reports identified some business owners who would prefer to operate their limited company in unincorporated form. For some individuals, that would be less burdensome, as they would not have to submit annual returns to Companies House or to operate a pay-as-you-earn system for directors’ pay. There would also be no need to distinguish between cash held by the company and personally, or to worry about directors’ overdrawn loan accounts.
Many of the businesses referenced in the reports were incorporated in the mid-2000s under the 0% corporation tax rate introduced by the previous Government, which I think Members on both sides of the Committee, on reflection, would probably agree was not the cleverest policy in incentivising businesses that are more naturally happy to be unincorporated to become incorporated. Despite the benefits of operating as a sole trader or partnership, many of those businesses have been discouraged from disincorporation by a number of tax charges.
Clauses 57 to 60 provide a relief for shareholders who choose to continue their business in an unincorporated form. The changes made by the clauses will allow business owners to transfer qualifying assets from a company to one or more of its shareholders, with no immediate corporation tax charge on the company. Relief will be available to about 610,000 companies with total qualifying assets of goodwill and interest in land not exceeding £100,000, covering about 40% of UK companies and the majority of very small businesses that may want to disincorporate.
The hon. Member for Newcastle upon Tyne North asked how many are likely to make use of it, as opposed to likely to be eligible for it. OTS research suggests that 14% of small companies would like to operate as unincorporated businesses. I think 14% of 610,000 companies is around 90,000; we shall see. Disincorporation relief will remove a key barrier to disincorporation and therefore allow a business greater flexibility to choose the most appropriate legal structure in which to operate. Unincorporated businesses may also be eligible to use the new cash basis for unincorporated businesses, simplifying their tax calculations still further.
HMRC and BIS are working together to provide simple guidance on their websites. That should be available from around September. I was asked about the impact on HMRC resources. HMRC is working through the details, but I understand that it expects minimal impact on its resources.
I was also asked about the impact on those who sign up but then have assets valued above £100,000. Those businesses will not receive disincorporation relief, but they are able to agree the valuation with HMRC beforehand, so it may be possible to avoid working extensively through the process. It will be available to them to agree the valuation before a claim is made, and HMRC allows businesses to check post-transaction valuations using form CG 34, in case anyone wanted to know.
Disincorporation relief will reduce the tax charges on eligible businesses that wish to disincorporate. It will encourage individuals to select a legal form based on their business needs, rather than continue with the form in which they found themselves a few years ago that is not to their liking, and it is a useful addition to our tax regime.

Question put and agreed to.

Clause 57 accordingly ordered to stand part of the Bill.

Clauses 58 to 60 ordered to stand part of the Bill.

Clause 61  - Attribution of gains to members of non-resident companies

Question proposed, That the clause stand part of the Bill.

Catherine McKinnell: This clause, like clauses 26 and 30, provides us with an example of the Government’s approach to making legislation EU-compliant that even the leading bodies for the tax professionals have stated is not up to the mark. I will not repeat the damning assessment by the Chartered Institute of Taxation, which I have quoted previously, but I would be grateful if hon. Members bore it in mind when I put the points it raised to the Minister and ask him a few questions on the measure.
Of course we support the anti-avoidance aims of section 13, but concern has been expressed that the clause and the Government’s attempts to make the legislation EU-compliant will not achieve their stated aim. As I mentioned, the Chartered Institute of Taxation said in February:
“We have our doubts that the proposed exclusion for ‘economically significant activities’ is wide enough. We doubt whether the revised draft legislation would be EU compliant.”
It then set out in some detail its reasons for believing that. Although it welcomed the raising of the minimum participation threshold from 10% to 25%, the CIOT said:
“Because the proposed 25% threshold not only looks at holdings directly owned by the individual but also holdings owned by a wide range of other connected persons, it is far from clear that the increase in the threshold will by itself will prevent the freedom to move capital being also potentially engaged.”
Those concerns about clause 61 remain, as they do regarding clause 26, and the CIOT has publicly queried the basis on which the Government rejected its analysis of the provisions.
It is not only the CIOT that is concerned; the Institute of Chartered Accountants in England and Wales is concerned as well. In its response to the draft legislation, it said:
“It is our view that the amendments made to the draft legislation…do not increase the likelihood of the UK law being EU compliant; if anything the position is worse than previously.”
Clearly, it is imperative that the Government get this right. If they do not, we will be discussing it again in Finance Bill 2014 and, I am sure, many people hope we will be discussing the matter again in Finance Bill 2015. Although I appreciate that the Minister is not in a position to discuss at length the legal advice he may have received, can he at least explain the grounds upon which he has discounted the views of the Chartered Institute of Taxation and the Institute of Chartered Accountants?
Although clause 61 modifies section 13 of the Taxation of Chargeable Gains Act 1992 to make it EU-compliant, he will be aware of a number of concerns about section 13 that have not been addressed in the Bill. The Charity Tax Group, which represents more than 400 members, has highlighted three main issues with section 13 that affect charities with investment portfolios. It believes that section 13 is discriminatory because: it allows a charity to invest in a UK company but prohibits investment in, for example, a German company; charities are exempt from taxation on gains, so to be covered by section 13 is perverse, because there is no tax to avoid; and, finally, that it is often impossible to determine whether a charity has exceeded the 25%—previously 10%—limit, because its co-investors in a fund are treated as connected and therefore have to be aware of the collective holding. Given that a charity often does not know who the other investors are, let alone their tax residence status, it may be impossible for the charity to determine whether it falls within the scope of section 13. I understand that the Charity Tax Group has been in discussions with HMRC regarding its section 13 concerns, so I would be grateful if the Minister provided some assurance that these matters are at least under review.

David Gauke: Clause 61 amends anti-avoidance legislation in section 13 of the Taxation of Chargeable Gains Act 1992. In broad terms, it ensures that a UK-resident person cannot arrange the artificial placement of assets overseas to avoid UK tax on gains. Let me explain a little of the background to the clause.
Section 13 attributes gains arising from the disposal of assets by an overseas closely controlled company to a UK-resident person that has an interest in that company. The UK-resident person would otherwise be taxed on such gains had they disposed of the asset and realised a gain themselves. The measure is intended to apply only where a UK-resident person has a significant interest in the overseas company and only in relation to tax avoidance, with genuine commercial activity excluded from charge.
On 16 February 2011, however, we received a reasoned opinion from the European Commission in which it contends that our existing legislation does not go far enough to ensure that genuine commercial activity is excluded from charge, and is therefore incompatible with EU treaty freedoms. The Commission made several points in support of its analysis. First, it would not be possible for a UK-resident person participating in business with an overseas company to avoid a tax charge by proving that the relevant transaction was bona fide and carried out for genuine commercial reasons and lacked any avoidance purpose. Secondly, UK rules appear to go beyond addressing what UK law refers to as wholly artificial arrangements, because the rules apply to any capital gains realised on the disposal of assets by a non-resident company in which the UK resident has an interest, but they do not explicitly enable the UK resident to remove the potential charge by establishing that the transactions are carried out for genuine commercial reasons and do not constitute artificial arrangements set up for tax-avoidance purposes only. EU law recognises that a restriction on the fundamental freedoms is permissible if it is justified by overriding reasons for public interest in preventing tax avoidance and is appropriate and proportionate to that aim. The changes made by clause 61 are intended to address the concerns raised by the European Commission.
Subsection (2) raises from 10% to 25% the interest that a participator or connected person may have in the overseas company before gains are attributed under the provision. That simplification is helpful and reduces the exposure to a possible breach of treaty freedoms.
Subsection (3) introduces two new exemptions. One is for economically significant activities, the definition of which follows the language of European case law and requires the activities to involve the use of staff, premises and equipment and the addition of economic value commensurate with the size and nature of those activities. The test is broad enough to cover also the making of investments where they are not aimed at avoidance. Secondly, it provides a motive test that enables UK members of a non-resident company to avoid any charge to tax where they can show that the activity was genuinely commercial and that the main purpose of the activity was not the avoidance of tax.
Subsection (4) defines economically significant activities for the purposes of the exemption and clarifies that provision of furnished holiday accommodation is to be interpreted as a legitimate disposal of an asset under section 13(5)(b) of the 1992 Act and therefore excluded from the charge under section 13. The legislation will apply to disposal taking place on or after 6 April 2012.
There was broad agreement among respondents to the consultation that an effort should be made to distinguish carefully between arrangements designed to avoid tax and those carried out for genuine commercial reasons, but views differed on how to achieve that. In particular, the use of the term “active management” as a barometer of genuine economic activity caused concern. Some in the investment and financial services sectors commented that active management would mean different things in different businesses and expressed concern that if the wording were used, it might inadvertently bring businesses within the scope of the charge simply because of their structure, even though they do not carry on economically significant activities.
It was also suggested that the blanket exclusion of “making of investments” from economically significant activities does not sit comfortably with the broad aim of the changes. Investment activity that serves the aims of the treaty should not be excluded from the exemption, because it does not, for example, provide goods or services in the way originally proposed. We have listened to those concerns, and, as a result, we have removed the requirement for active management. We accept that the making of investments can represent economically significant activity.
Let me pick up some of the points raised by the hon. Member for Newcastle upon Tyne North. The first point was whether there should be a specific exemption for charities. We do not believe that would be appropriate. The vast majority of charities are genuine but, regrettably, the generosity of reliefs and exemptions afforded to charities can make them targets for those who wish to avoid UK tax. It is important that we protect the positive connotations of the word “charity” in the public mind. An exemption for charities could encourage determined tax avoiders to set up sham charities to avoid UK tax. In practice, it will not be difficult for charities to comply with section 13.
Let me turn now to the broad question whether the changes make the legislation compliant and to the concerns raised by the likes of the CIOT and the ICAEW. As I said when we discussed clause 26, EU law in this area is not well defined and is still developing. The European Commission may therefore wish to test the application of EU law in this area through proceedings in the European Court of Justice. The Government believe the changes we have made ensure that the legislation complies with our European obligations.
On whether the burden of proof that tax avoidance was not the motivation should fall on the taxpayer, section 13 of the 1992 Act requires the participant to self-assess whether tax is due. HMRC can of course open an inquiry where it thinks tax should have been paid; in doing so, it will need to show why it thinks tax should have been paid. If an inquiry is opened, the participant will need to be able to satisfy HMRC that avoidance was not the main motivation, and any disputes may be taken to the independent tax tribunal.
Our priority must be to maintain the effectiveness of this anti-avoidance provision as a defence against abusive cross-border arrangements and to do so without impeding genuine commercial activity. The amendments we have made—increasing the participation threshold, introducing an exemption for economically significant activities and introducing a motive test—achieve that aim. I therefore hope the clause can stand part of the Bill.

Question put and agreed to.

Clause 61 accordingly ordered to stand part of the Bill.

Clauses 62 and 63 ordered to stand part of the Bill.

Schedule 23 agreed to.

Clauses 65 and 66 ordered to stand part of the Bill.

Clause 67  - Cars with low carbon dioxide emissions

Ian Mearns: I beg to move amendment 50, in clause67, page35,line37,leave out subsection (2).

David Crausby: With this it will be convenient to discuss the following:
Amendment 54, in clause67,page36,line15,at end add—
‘(9) The Chancellor of the Exchequer shall review the overall impact of the Government’s overall budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.
Clause stand part.

Ian Mearns: It is a pleasure to serve under your chairmanship once again, Mr Crausby. The amendment would remove subsection (2), which makes a change so that cars provided for leasing no longer qualify for the first-year allowance. It does that by repealing the override contained in section 46(5) of the Capital Allowances Act 2001. As the fourth report of the Transport Committee highlighted last September,
“The Government is committed to reducing carbon emissions to 80% below 1990 levels by 2050. Emissions from domestic transport comprise approximately a quarter of the UK’s total carbon dioxide emissions, with emissions from cars accounting for over half of this figure. The Government must therefore make significant efforts to decarbonise road transport if it is to meet its carbon reduction commitments under the Climate Change Act 2008. There are a number of approaches to decarbonising road transport. Plug-in vehicle technology is one of the more market-ready of these approaches.”
The north-east economy has an interest in electric vehicles, because Nissan is producing the model known as the Leaf, which has added a significant number of new jobs to the production lines. The Government hope to encourage consumer demand for plug-in vehicles by providing financial incentives for consumers to buy the cars and by providing funding for publicly available vehicle charging infrastructure. Consumer demand has increased since the Government introduced the plug-in car grant, but we are hearing mixed messages from the Department for Transport about whether demand is lower than expected or progressing according to forecasts.
Initial public investment in charging infrastructure was designed to provide reassurance to potential plug-in vehicle owners that they would be able to charge their cars in public spaces if necessary. The DFT hopes that this will stimulate demand for plug-in vehicles. However, the national charge point registry was far from comprehensive and lacked even the location of the majority of charge points installed using public funds. That is of concern.
We are also concerned about the cost to the public or to companies buying fleets of electric vehicles, which represents a significant initial capital outlay. Undoubtedly there are savings down the line from fuel use, but we are concerned that getting rid of the first-year allowance for fleet vehicles will have a significant impact on the uptake of electric vehicles in the overall market.
The clause extends the 100% first-year allowance for expenditure incurred on cars with no CO2 emissions, which was due to expire on 31 March this year, and extends it for an additional two years to 31 March 2015. It also reduces the emissions thresholds that determine the rates of capital allowances available on cars. Given that subsection (2) will exclude UK firms leasing or renting such cars from claiming the previous 100% first-year allowance, there is concern in the industry about the potential market impact, given the relatively high initial capital outlay for the vehicles.
No doubt, as the technology advances the unit cost of the vehicles will reduce, but we are not at that stage yet. It is the comparative outlay for the vehicle against an internal combustion engine vehicle counterpart in the existing market that worries us. There is serious concern, given the critical role that UK leasing and rental firms have played in supporting the purchase take-up and use of low-emitting cars.
Consumer and business confidence is important in helping this new and potentially highly successful industry to grow in the UK. The industry is of particular significance to the north-east, because of the role of Nissan and its supply chain. I have said before in Committee that Nissan on its own employs about 6,500 people, but there are probably about another 25,000 jobs in the supply chain in the wider north-east region and the north of England.

John Pugh: The hon. Gentleman is making an interesting speech, but there is a complication when we talk of decarbonisation, because electricity is produced from carbon sources. People who argue for clean diesel would say that the overall impact of that would be less than that of an electric car, so the Government face a dilemma if they do not know the exact source of the electricity.

Ian Mearns: The hon. Gentleman makes an interesting point. I think there are some fairly advanced-stage tests on the electric vehicles produced by Nissan showing that the carbon emissions from the electricity they use are significantly less than those produced over the same mileage by petrol or diesel engines. I think a test was done on the fleet of vehicles used by Darlington council. I apologise if I get the figures wrong, but I think it was something like 9,000 miles for less than £100 of electricity. That is significant in terms of potential CO2
Clause 67 could have a detrimental impact on the UK’s low-carbon electric vehicle industry. Subsection (2) will exclude UK firms leasing or renting such cars from claiming the previously available 100% first-year allowance. That is a serious concern given the critical role that UK leasing and rental firms have played in supporting the purchase take-up and use of low-emitting electric vehicles.
We have been repeatedly told that the Government see themselves as the greenest ever, but what have we seen? Three years on, we see a Government that in 2012 presided over an increasing level of CO2

Catherine McKinnell: As my hon. Friend has outlined, clause 67 extends the 100% first-year allowance for expenditure incurred on low-CO2

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.